What Will President Obama Say about Medicare?

January 25, 2011

To just about everyone who has looked at the question, reining in entitlement spending means reining in health care spending, and that means slowing the growth of Medicare, says John C. Goodman, president, CEO and Kellye Wright fellow with the National Center for Policy Analysis.

The Affordable Care Act, signed into law last spring, cuts future Medicare spending by much more than what President Obama's bipartisan deficit commission proposed. In fact, if the law remains as is, future Medicare spending per capita will grow no faster than the economy as a whole. The problem is that no one thinks this is realistic.

One way to consider what's about to happen is in terms of dollars and cents.

If you turned 65 and enrolled in Medicare this year, the lifetime value of your Medicare benefits decreased by about $35,000 on the day President Obama signed the health reform bill, at least on paper.

For younger people, the loss will be even greater.

How will the growth in Medicare spending be controlled?

To achieve the necessary targets, the new law gives an Independent Payment Advisory Board the power to recommend spending cuts.

Congress must either accept these cuts or propose its own plan to cut costs by as much or more than the panel's proposal.

If Congress fails to substitute its own plan, the board's cuts will become effective.

In this way, the growth rate for Medicare spending is officially capped.

Moreover, the advisory board is barred from considering just about any cost control idea other than cutting fees to doctors, hospitals and other suppliers.

The Office of the Medicare Actuaries is projecting that, by the end of this decade, Medicare payments to doctors and hospitals will be below the rates paid by Medicaid. These low payment rates mean hospitals will not be able to provide seniors with the same kind of services they provide younger patients, says Goodman.